Four Rate Hikes in 2018 as US National Debt Will Spike

Chorus gets louder. But no one will be ready for those mortgage rates.

It didn’t take long for rate-hike expectations to be jostled further by last week’s “monster” two-year budget bill that Congress passed with its usual gyrations, including a government mini-shutdown, and that Trump signed into law on Friday. The bill increases spending caps by $300 billion over the next two years. It includes an additional $165 billion for the Pentagon and $131 billion for non-defense programs.

The bill comes after the tax cuts slashed expected revenues by $1.5 trillion of the next ten years. So pretty soon this is starting to add up.

Going forward, the US gross national debt will likely balloon at a rate of over $1 trillion a year, every year, even during the best of times. It’s $20.5 trillion currently [update 3 hours later, after debt ceiling suspended: $20.7 trillion]. It will likely be over $21.5 trillion a year from now – and this when the US economy is expected to boom. Any downturn will cause the debt to spike.

And what will the Fed do?

Four rate hikes this year – that’s what Credit Suisse’s US economists said in a research note on Monday. Previously, they’d expected three rate hikes for 2018.

“The FOMC has already boosted their growth outlook for 2018 in light of the tax bill passed in December and we anticipate another upward revision to their growth forecast at the March meeting,” the economists wrote in the research note, according to Reuters.

“With the economy near (or above) full employment, prudent risk management suggests the Fed ought to accelerate their tightening in response to a large positive demand shock,” they said.